Philippa Kaur

DEAR TOP TABLE, We have discussed many of the risks that threaten us in the coming year: the pandemic, our supply-chain troubles and staff retention. But I want to raise a more personal concern: the possibility that I will have to make a public apology. Everywhere I looked over the past 12 months, executives were grovelling. The thought of promising to work on becoming a better person makes me feel physically sick.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

MOST COMPANIES prefer to talk about corporate social responsibility than to act on such pronouncements. The Uyghur Forced Labour Prevention Act, which President Joe Biden signed into law on December 23rd, is leading many to do the opposite. American businesses may be happier to try to comply with it than to admit publicly they are doing so.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

IN “THE COAL QUESTION”, written in 1865, William Stanley Jevons, a British economist, ascribed “miraculous powers” to the fuel source powering the Industrial Revolution. Coal, he wrote, stood entirely above all other commodities. Such were its superpowers, he fretted about the consequences for Britain if it ran out of the stuff. He needn’t have worried. Not only has coal proved impossible to exhaust. More than a century and a half later, the largest source of carbon emissions is devilishly hard to kill off.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

A MESSY WORLD is great news for those whose business it is to sort through a mess. One group in particular has had a fabulous time of late. “Business demand across every market has been strong,” says Elliott Portnoy, chief executive of Dentons, the world’s fourth-biggest law firm by revenues. In 2021 Dentons, a product of a series of combinations, including one six years ago with Dacheng, a large Chinese practice, may bring in over $3bn in gross billings. In the past 12 months it has added some 1,000 lawyers to its head count, which now numbers over 12,000, and opened offices in seven countries. It has to turn away business for lack of capacity.Dentons is not an isolated exhibit. Big law is on a tear. The 100 biggest global firms look on track handily to surpass their combined revenues of $128bn in 2020. Kirkland & Ellis, an American giant which has topped the rankings in recent years, is expected to rake in annual billings of more than $5bn, more than twice as much as in 2015. Profits for each equity partner, an industry benchmark, have risen by more than 6% at over half of the 300 biggest global firms, estimates Peter Zeughauser, a consultant who advises many of them. For the top 75 they have shot up by double digits. Equity partners at America’s top 100 firms could take home as much as $2.5m each on average. “Every law firm I know, every one, has had a record profit,” marvels David Wilkins of Harvard Law School, whose seminar on the legal business is popular with big-law chiefs. And this breakneck growth is coinciding with significant changes in the profession’s time-honoured ways.The bonanza is the result of a combination of ballooning demand for legal services and falling costs. Thanks to pandemic-era restrictions, variable expenses such as travel and entertaining clients have plummeted. Despite their starchy reputations many firms have displayed managerial flexibility. The accoutrements of the legal professions—from leather-bound tomes and yellow pads to dark suits—were readily discarded in favour of Zoom and Google docs. Working from home became a convenient pretext to bill around the clock.Even as overheads have declined, demand for legal services has swelled. Firms bracing for a repeat of the drought that followed the global financial crisis of 2007-09, when only bankruptcy practices did brisk business, have instead found themselves swamped. Mergers and acquisitions (M&A), the biggest money-spinners for lawyers, will exceed $5trn in value in 2021, obliterating the previous record of $4.2trn in 2009. Private-equity deals, from fundraising to divestments, are booming. So are stockmarket listings (including via complex special-purpose acquisition companies, or SPACs), as well as delistings (particularly of Chinese companies from American exchanges) and relistings (of those same companies in Hong Kong or Shanghai, at the tacit behest of the Communist Party).At the same time, the law firms’ non-transaction business, which has historically been more placid, is picking up. Governments around the world are preparing to regulate areas from data and diversity to climate. The European Union may soon pass two sweeping laws governing digital markets and services, which could ensnare rich clients such as such as Apple, Alphabet and Meta. American trustbusters are rediscovering their pep under President Joe Biden. His Chinese counterpart, Xi Jinping, is cracking down on the private sector across the board.A global deal to make multinational companies pay more taxes and to divvy up the spoils more equitably between countries is expected to be approved in the next few months. Businesses are also under growing pressure from investors to conform to environmental, social and governance standards, which involves new legal instruments. On top of that, Dentons foresees a “very busy trial year” in 2022. Lawyers report that the prosecution of Elizabeth Holmes, accused of fraud at her blood-testing startup, Theranos, has prompted entrepreneurs and firms touting imperfect products to seek legal advice. Ms Holmes denies the charges. If she is convicted, law firms expect such consultations to intensify.All these “are challenges for businesses and bright spots for lawyers”, says Jeroen Ouwehand, global senior partner of Clifford Chance, a big London firm. To make the most of the brightness, law firms are shaking up their management model. In many ways, they increasingly look an awful lot like their large corporate clients.Pay scales of justiceCulturally, the biggest shake-up is taking place in the area of compensation. Large firms have historically doled out pay to partners based on seniority. The approach has many virtues, not least promoting collegiality among many people who live to argue. But it requires the richest practices such as M&A to cross-subsidise less lucrative ones. And, as one partner at a global firm puts it, “It only works if all the partners work like maniacs, and everyone is making a ridiculous amount of money.”For the rainmakers, it increasingly does not work. Plenty of firms’ top performers are only too happy to jump ship if offered better terms. The partner says he receives a couple of emails from headhunters every week. Kirkland & Ellis and Latham & Watkins have climbed their way to the apex of the American market in part by poaching successful lawyers with the promise of paying them based on the profits they bring in. The performance-based approach, common in the corporate world (and known as “eat what you kill” in lawyerly circles), is spreading. In December Cravath, Swaine & Moore, a New York firm, and Linklaters, a London one, both stepped away from the seniority system.Law also resembles other sectors in the way firms configure their operations. Clifford Chance runs a research-and-development office, which studies matters like how best to administer far-flung global cases (with an experienced case manager rather than a lawyer) to the feasibility of shifting financial transactions onto blockchains (the jury is out). What used to be a senior partner’s well-timed whisper to the client company’s board is coalescing into formal practices in new non-transaction areas. That sort of work doesn’t provide the same billing rates as complicated deals, but it is consistent and growing, says Alastair Morrison, head of strategy at Pinsent Masons, a big London firm. Ashurst, an Anglo-Australian firm, has created an in-house consultancy with 60 people (including ten partners) doing anti-fraud, compliance and “remediation” (crisis management in plain English) work that used to be the preserve of accountants and consultants. In 2021 Dentons teamed up with the Albright Stonebridge Group, an advisory firm founded by Madeleine Albright, an American former secretary of state, to launch a consulting outfit. Dentons also employs 15-20 people just to seek out and manage such combinations, as well as those with other law firms.Most such deals are international—the third way in which law firms look ever more like other global businesses. Lawyers used to follow their multinational clients to new jurisdictions. Now many are expanding pre-emptively, opening offices in erstwhile legal backwaters, both to serve customers and cut costs. Clifford Chance has moved some operations from expensive legal hubs such as London and New York to cheaper places like Delhi and, more recently, Newcastle. Ashurst now has as many lawyers in Australia as in Britain. It does some simpler work from Brisbane and Glasgow rather than Sydney or London. Baker McKenzie, a Chicago firm that was early to the trend, now operates in 46 countries. Dentons boasts over 200 offices in 82 countries; it praises the virtues of places once sniffed at by big-shot lawyers, such as Milwaukee.At the heart of operations like Baker McKenzie’s or Dentons’ is a structure known as a Swiss verein (voluntary society). Branches in different countries operate under a similar name but enjoy substantial autonomy in how they are run. Firms structured this way look like an assortment of fast-food franchises rather than a unitary organisation with a strong culture; critics sometimes still deride Baker McKenzie as Baker McDonald’s. But like the fast-food chain, vereins are at once more global and more local than more centralised rivals.Dentons has pushed the verein approach particularly hard in recent years. Its name was deliberately chosen as the most memorable and easiest to pronounce from among 67 permutations of the names of former partners. In the past 12 months it has forged ties with firms in North America, Latin America and Africa, and is about to close a deal with a Vietnamese one. It has also opened new offices in Bolivia, Granada and Uruguay. “The more global the firm, the higher the demand,” says Mr Portnoy. He refers to Dentons as “polycentric”: with no dominant culture, no standard pay scale, no instructions on whom to hire and, most of all, no “colonisation”. It even dispenses with a headquarters. Every time you Zoom with Mr Portnoy or Joe Andrew, Dentons’ global chairmen, they appear to be in a different place.Firm footingBeing on the ground has proved especially useful for Dentons and others during the pandemic, when travel restrictions limited where and how easily partners could move around. It has been especially handy for firms to have a large presence in America and China, with their vast domestic markets and relatively rapid economic rebound from covid-19. The biggest American firms, like Ellis & Kirkland or Latham Watkins, have consolidated their position. Big Chinese ones like Yingke or King & Wood Mallesons (as well as Dentons, whose most numerous practice is in China) remain scarce in a field dominated by America, which accounts for four in five of the top 100 firms. But they have rocketed up the revenue rankings.The growth of vereins is also making the legal profession resemble other businesses in another way. Big law is becoming not just bigger but also more concentrated. A handful of superstar firms like Kirkland & Ellis or Dentons increasingly dominate the league tables. In 2020 the three biggest earners accounted for nearly 10% of the gross billings at the top 100 global firms, up from 8% five years earlier. The largest firms with more resources are better able to serve clients wherever and in whatever capacity they need serving, to deal with an inevitable uptick in overheads as the world puts the pandemic behind it, and to poach talent from weaker rivals. If corporate history is a guide, the high-flying legal eagles are unlikely to have their wings clipped soon. For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

PAUL IS STRUMMING his guitar in a studio in London. George yawns and Ringo looks on listlessly. John is late, as usual. Suddenly, magic. A melody starts to take shape; George joins in on his guitar; Ringo claps out a beat. By the time John arrives, The Beatles’ next single, “Get Back”, is thrillingly recognisable.“Get Back” provides both the standout moment and the title of a glorious new documentary by Peter Jackson, charting the days that the band spent together in January 1969, writing and recording songs for a new album. For anyone interested in music, pop culture or creativity, the film is a stocking filled with treats. When George is struggling for a line to follow “Something in the way she moves”, John has advice. “Just say whatever comes into your head each time—‘attracts me like a cauliflower’—until you get the right words.”Executives should watch it, too. The question of what makes a team sing is a staple of management research, and the Beatles documentary is a rare chance to watch a truly world-class team at work. It reinforces known principles, and adds some of its own.Take the role of Ringo, for example. When he is not actually playing, the band’s drummer spends most of his time either asleep or looking bewildered. When the other three musicians bicker, Ringo smiles beatifically. To a casual observer, he might appear dispensable. But musically, nothing works without him, and as a team member he softens conflict and bridges divides.Psychological make-up matters to how teams come together. Academics at Carnegie Mellon University and the Massachusetts Institute of Technology have found that the performance of groups is not correlated with their members’ average intelligence, but with characteristics such as sensitivity and how good teams are at giving everyone time to speak. Ringo provides backing; the band would be less cohesive without him.Another principle reinforced by the film: look here, there and everywhere for inspiration. In a study from McKinsey, more than 5,000 executives were asked to describe the environment in which they had their own best experiences of being in a team. Among other things, the consultancy identified the importance of “renewal”, the habit of keeping staleness at bay by taking risks, by learning from others and by innovating.“Get Back” shows a team of superstars embracing exactly that ethos: playing the songs of other bands, grabbing ideas like magpies and happily taking the advice and help of outsiders. It is the introduction of a pianist called Billy Preston, known to the group from their early days playing in Hamburg, which really makes the recording sessions start to click. (Let’s make him the fifth Beatle, suggests John. “It’s bad enough with four,” sighs Paul.)A third message of the film concerns when and how to let it be. In an effort in 2016 called Project Aristotle, Google tried to define the characteristics of its most effective teams. One of its findings was that goals ought to be “specific, challenging and attainable”.When they first meet up, on the second day of 1969, the band has a task that fits these criteria snugly: to write an album’s worth of new songs in just a matter of days and perform them on a TV special. But how they get there is left largely to them. That doesn’t always work out. At one point Paul yearns for a “central daddy figure” to set them straight on their scheduling. But the combination of a deadline and autonomy yields remarkable results.There are limits to what can be learned from “Get Back”. The Beatles are not always supportive of each other—George, feeling disregarded by John and Paul, briefly quits the band. Drugs played a part in their output: LSD may be a red line for some managers. Although technical ability is not the only determinant of success, sheer talent helped. Any band with a Lennon, a McCartney and a Harrison in it would have an advantage.But one wider lesson comes through loud and clear. The Beatles love what they do for a living. When they are not playing music, they are talking about it or thinking about it. They do take after take of their own songs, and jam constantly. Managers who think that building esprit de corps requires a separate activity from work—here-comes-the-fun time, set aside for axe-throwing or GIF battles or something equally ghastly—are missing a fundamental point. The highest-performing teams derive the greatest satisfaction not from each other, but from the work they do together.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Teamwork and the Beatles” More

YOU HAVE to hand it to Mark Zuckerberg. When the founder of Facebook announced in October that he was changing the name of the social-media network’s parent company to Meta Platforms in order to help create an alternative digital reality known as the metaverse, he was mercilessly mocked. To some, he was generating a smokescreen to distract attention from a political furore. To others, he was merely the latest middle-aged tech billionaire to chase a childhood fantasy, much as Amazon’s Jeff Bezos and Tesla’s Elon Musk were doing with space rockets.And yet his timing was impeccable. Since October searches on Google for “metaverse” have soared. Wall Street is fanning the hype. According to Bernstein, a broker, the term cropped up 449 times in third-quarter earnings calls, up from 100 in the second quarter. It says markets with potential annual revenue of at least $2trn could be disrupted by the metaverse. Jefferies, a bank, says that though the phenomenon may be more than a decade away, it has the potential to disrupt “almost everything in human life”.Other tech giants like Microsoft have set out plans to head for the metaverse. But it is big firms still under the control of their founders that may become the most ardent evangelists. Mr Zucker berg, with a net worth close to $125bn and almost total control of a company valued at $908bn, is the most prominent. Others include Jensen Huang of Nvidia, a maker of graphics processors worth $722bn, and Pony Ma of Tencent, the Chinese tech giant worth $550bn, whose gaming investment portfolio includes a 40% stake in Epic Games, owner of “Fortnite”, one of the world’s most popular games. Epic’s founder, Tim Sweeney, is himself a force to be reckoned with. He recently told Bloomberg that the metaverse was a multitrillion-dollar opportunity, and that companies like his were in a race to get to a billion users in order to set the metaverse’s standards for the future.It is shaping up to become a billionaire battle similar to the Bezos-Musk space race. Instead of rocket science, it will be fought with reality-bending headsets, blockchains, cryptocurrencies and mind-frazzling amounts of computing power.Precisely what these plutocrats mean by the metaverse is as yet unclear. Will it be an all-consuming futuristic world of virtual reality, avatars, oceanside mansions and other online razzmatazz that will make the real world a dull place by comparison? Or will it simply be a richer, more immersive version of what already exists today: a way to socialise, work, shop and play online even as life in the everyday world carries on as normal? It is even less clear whether tomorrow’s internet users will be seduced by the dreams of entitled tech billionaires.A look at the ambitions of Meta, Nvidia, Epic and Tencent give a sense of the scope of the undertaking. Each has their niches. Mr Zuckerberg has earmarked $10bn this year mostly to develop the virtual- and augmented-reality headsets and glasses that he hopes will provide a dominant access point to the metaverse, much as Apple’s iPhone does with the mobile internet. Nvidia is focused on what it calls the omniverse, a technology based on its chips that brings engineers, designers and other creative types together virtually to make things—mostly, for now, in industrial settings. Epic has been creating virtual worlds for years, including “Fortnite”. In the metaverse, its killer app may be Unreal Engine, a platform that gives its own and other developers the ability to make lifelike 3D experiences, including games, films, architectural models and industrial designs. Tencent has China to crack. Mr Ma is probably wise to play it carefully, given the Communist Party’s techlash. But his firm’s popular WeChat super-app, including WeChat Pay, is already a 2D version of what the metaverse could become in 3D.Behind their futuristic ambitions lie some common experiences. First, the mobile internet is reaching the end of an era. In America and Europe, politicians are threatening tighter rules against monopolies and privacy abuses, especially with respect to Facebook and Google. In China, the tech industry is reeling from the government onslaught. Not for nothing are some first-generation tech entrepreneurs in America and China calling it quits. Those who remain standing need a compelling new story to tell.Next, they operate in constrained worlds. Apple is a particular bugbear for Mr Zuckerberg and Mr Sweeney. The iPhone-maker is using the privacy settings in its iOS operating system to control the extent to which Facebook can sell digital adverts. Epic is engaged in an antitrust battle with Apple over the fees its App Store imposes on game developers, which has so far been fairly unsuccessful. That is why both men vow so vehemently to promote interoperability—ie, no closed systems—as well as common standards. They, too, want to be architects of the operating systems of the future.They won’t have the field to themselves. Apple, though so far quiet about the metaverse, is no doubt preparing an offensive. Telecoms firms want a sniff, having invested heavily in ultra-fast, low-latency 5G spectrum. Rapidly growing platforms like Roblox, offering a build-your-own games model that attracts 200m users a month, have already captured young hearts. There are naysayers, too, notably proponents of more distributed technologies that are known as Web3, who argue that blockchains and cryptocurrencies are the next big thing—though as Ben Thompson, a tech pundit, points out, these may find much better use cases in the metaverse than in the real world.MoonshotsThere is a lot to play for. As Mr Thompson says: “Elon Musk wants to go to the Moon. Mark Zuckerberg wants to create entirely new moons in digital space.” But just as space is a race, so is the metaverse. Messrs Zuckerberg, Huang, Sweeney, Ma et al may promise a future for the internet that is more open, immersive and engaging than the mobile one that exists today. But each wants to get there first, so that they can set the rules to their advantage. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Lords of the metaverse” More

FATHER CHRISTMAS and the global container-shipping industry have similar objectives, though the timescales differ. Santa’s world-spanning logistics operation aims to deliver presents all in one night. Shipping firms step theirs up around September to ensure that gifts and other seasonal goods join a vast global supply chain. But a system that usually operates unnoticed (and unremarked upon) is still in chaos. For months a covid-induced maelstrom of delays and sky-high shipping rates has left goods lingering at sea and bare shelves in shops around the world. Politicians insist that the snarls will disappear. But survey the horizon and there is little sign of smoother sailing.The pandemic has hit shipping firms’ operations along the supply chain. Labour shortages have been worsened by workers forced to isolate. China’s zero-tolerance measures have closed port terminals after the discovery of one or two covid-19 cases. The spread there of the new Omicron variant makes more closures likely. But the most significant impact of the pandemic has been to ignite demand for goods from locked-down consumers, particularly Americans eager to buy Chinese goods using stimulus money. The value of merchandise goods exported from China to America was 5% greater in the first six months of 2021 compared with 2019, before the pandemic. In September and October it was 19% higher than two years earlier.The result is that shipping rates are not coming back to earth. A set of benchmark spot rates from Freightos, a digital-freight marketplace, between China and America’s west coast are below a recent peak but at around $15,000 per FEU (40-foot equivalent unit), they are ten times pre-pandemic levels (see chart 1). The outsize appetite for goods in America has had a knock-on effect elsewhere. A shortage of vessels, drawn by high rates to the transpacific routes, has pushed the cost of sending boxes between China and Europe to record levels. That raises costs for businesses that rely on shipping firms. Small items such as smartphones or sports shoes can be packed by the tens of thousands into a container. But a rough estimate of the average value of goods in a box travelling between China and America is around $50,000. Another $15,000 makes a significant difference.To eye-watering costs add lengthy delays. Ports, unused to such volumes of traffic, face long queues of ships waiting weeks to unload. In a system already stretched to the limit by lack of lorry drivers and warehouse space, up to 15% of the global container fleet is currently sitting at anchor outside the world’s ports.Apparent signs of improvement are illusory. A widely watched indicator, the armada waiting to offload goods at the twin ports of Los Angeles and Long Beach, America’s main entry points for Chinese goods, now numbers some 30-40 vessels, down from 70-80 in October. But that is mostly because a recent change to the queuing system means that ships are now asked to wait far out at sea (some even linger off the Chinese coast). The real queue is over 100 ships.Short-term relief from congestion is improbable, and the longer it builds the longer it will take to unwind. Most pundits see little hope of improvement until after Chinese new year in February. Disruptions may last all of 2022. Though rates may have hit a peak, they are unlikely to fall much in the next six months and are set to remain elevated into 2023, thinks Lars Jensen of Vespucci Maritime, a consultancy. Only then will new vessels ordered in response to high rates start to hit the waves.Even if spot rates have peaked most customers will face higher bills in 2022. The long-term contracts that govern most container traffic are currently far lower than spot rates—perhaps $2,500-3,000 per FEU between China and America. But as David Kerstens of Jefferies, a bank, points out, spot rates inform contract rates. In 2021 two-thirds of the contracts signed by Maersk, the world’s biggest container-shipping firm, which controls a fifth of the global market, have been long-term ones. As Maersk’s contracts and those of its rivals roll over, the rates could double. And with customers more concerned about securing scarce capacity than haggling over price, some are signing contracts for two years rather than one.Fears that a trend for “near-shoring” might hit demand seem unwarranted for now. Soren Skou, boss of Maersk, sees little evidence of it so far. Many firms that source supplies from China are having doubts about relying on one country. A “China plus one” policy of adding a supplier in another part of Asia, such as Vietnam or Thailand, will require more ships to transport these goods directly or to giant Chinese hub ports for their onward trip.The industry’s response to the crunch reflects changes to its structure that predate covid-19. In the words of Rahul Kapoor of the Journal of Commerce, a sectoral must-read, “The era of cheap shipping is behind us.” Shifting goods around the world has been inexpensive because the response to high rates has historically been a frenzy of orders. That, in turn, led to a flood of vessels that arrive just as economic conditions worsen and trade slows.But bloody price wars over market share may be gone for good. Since 2016, when a previous ship-ordering binge collided with slowing trade, collapsing rates and big losses, the industry has consolidated—20 big firms have become seven bigger ones in three global alliances. This has helped them manage capacity more ruthlessly. As a result, the cyclical industry may suffer shallower and shorter downturns, says Parash Jain of HSBC, another bank.The strange result of the pandemic is that the industry is awash with cash. Simon Heaney of Drewry, a consultancy, says that profits could reach $200bn in 2021 and $150bn in 2022, an unimaginable bonanza beside the cumulative total of around $110bn for the previous 20 years. As well as returning cash to shareholders, Maersk may acquire more firms in e-commerce fulfilment and air-freight as part of its effort to build an end-to-end logistics business that ferries goods by sea, land and air, taking on DHL and FedEx. Other big container-shipping companies such as China’s COSCO and France’s CMA-CGM are doing the same.The big question is how much new capacity is in the offing. As world trade boomed in the years before the financial crisis of 2007-09, order books were roughly equivalent to 60% of the existing fleet. They now stand at a little over 20%. Restraint is due in part to uncertainty over the technology needed to make vessels which have a 25-year lifespan compliant with tougher carbon-emissions rules that the industry is anticipating. Still, capital discipline may have its limits. Orders have begun to swell again (see chart 2). It will take two to three years before ships ordered today start rolling down slipways, so the era of expensive shipping could well last for another Christmas or two.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More